One of the biggest recent cuts propping up the state budget is suddenly in doubt.
A judge has ruled the Legislature acted illegally last year when it eliminated an annual increase in benefits to retirees in two older state pension plans.
The eventual hit to the budget could reach into the hundreds of millions of dollars per year starting with the current 2011-2013 budget, forcing new cuts, taxes or other budget moves. But don’t count on those choices being forced immediately — or on any extra money going into the pockets of government retirees right away.
Thurston County Superior Court Judge Chris Wickham filed his decision Nov. 9 but has yet to issue a final order. The state would then have a chance to appeal, a process that could take months or even years.
“It’s definitely a big victory, and really says that when you promise something, you are obligated to give it,” said Tim Welch, a spokesman for the Washington Federation of State Employees, one of the groups that sued. “I think realistically though, the state is going to appeal Judge Wickham’s decision, so I don’t think the Legislature will grapple with that issue for some time.”
House budget chairman Ross Hunter said he’s sure the state would appeal and that the Legislature would not have to make changes until the case winds its way to the Supreme Court.
The groups that sued — the federation, the Washington Education Association and the Retired Public Employees Council of Washington — haven’t decided whether to appeal a portion of the decision: The judge’s order excludes workers who left government service before 1995.
The decision affects current and future retirees enrolled in the Public Employees’ Retirement System Plan 1 (PERS 1) and the Teachers’ Retirement System Plan 1 (TRS 1). Both closed to new members in 1977.
Grappling with budget shortfalls, lawmakers froze their benefit payouts, except for those receiving certain minimum amounts. Eliminating the cost-of-living adjustment was a bipartisan effort in the Senate and relied mostly on Democrats’ votes in the House.
Lawmakers were counting on a 17-year-old provision in state law to stand up in court. That was written when the cost-of-living adjustments were put into their most recent form, known as the uniform COLA. The provision declared there was no contractual right to the increases and the Legislature reserved the right to change or cut them.
“I thought the law was pretty clear,” said Hunter, D-Medina.
Wickham wrote, however, that he was forced to follow state Supreme Court precedent that “an employer could not reserve the right to unilaterally terminate vested retirement benefits.”
He acknowledged the high court may decide this case is different as “COLAS are generally implemented to create flexibility during economic shifts, and this state has weathered a major economic shift that required such flexibility.”
The law was intended to save the state general fund $415 million in the current budget period and another $525 million in 2013-2015.
It was expected to reduce the older plans’ unfunded liability by $3.8 billion over the long run.
State Actuary Matt Smith hasn’t run the numbers on how many people would be affected by the judge’s exclusion of pre-1995 retirees, but he said as of 2009, 41 percent of the 42,000 TRS 1 members and 42 percent of the 67,000 PERS 1 members had left government service before 1996.
Ed Gonion, executive director of the Washington State School Retirees’ Association, which is not a plaintiff in the lawsuit, said he expects the exclusion to be appealed.
Gonion said part of the deal when his group’s members put in their years of service was a “small, miniscule COLA.”
“Everything else has gone up,” he said, citing examples: “Your utility bill costs more. Food costs more. Gas costs more.”